Selling a Short Lease Flat by Auction in 2025

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Key Considerations for Selling a Short Lease Flat by Auction in 2025

• Leasehold Reform Act Updates:  The proposed updates to the Leasehold Reform Act aim to simplify the lease extension process and reduce costs for leaseholders. While buyers may benefit from these reforms, sellers can market the property as an opportunity for buyers to extend the lease under potentially more favourable terms. Highlight the current lease length and the potential costs of an extension to ensure transparency.
• Auction Trends in 2025:  Auctions remain a favoured platform for selling properties with unique conditions, such as short leases. The current property market in 2025 sees increased investor interest in undervalued properties due to rising demand for rental income. Selling via auction can attract cash buyers who are unaffected by tightening mortgage restrictions related to lease lengths.

Benefits of Selling a Short Lease Flat by Auction

• Faster Sales Process: Auctions provide a clear timeline, with the sale often completing within 28 days of the auction date. This is ideal for sellers who need a quick transaction.
• Access to Lease-Savvy Buyers: Auction buyers often include investors and developers who are familiar with leasehold properties and the reforms introduced by the Leasehold Reform Act. These buyers may see the property as a value-add investment, planning to extend the lease after purchase.
• Transparency and Competitive Bidding: Auctions are transparent, with the sale price determined by open bidding. This can sometimes lead to a higher final price if the property attracts strong interest.
• Avoiding Lease Extension Costs: By selling as-is, sellers avoid the upfront costs of extending the lease themselves, shifting the responsibility to the buyer. This can be particularly appealing when marriage value applies due to a lease term under 80 years.

Challenges and Mitigation Strategies

• Lower Sale Price: Auction sales may yield a lower price compared to private sales, as buyers will factor in the cost of extending the lease.  Mitigation: Work with a professional auction house to set a realistic reserve price that accounts for market conditions and the remaining lease term.
• Auction Fees: Sellers must pay auction house fees, which typically range from 2.5% to 3% of the sale price, plus marketing costs.  Mitigation: Factor these costs into your reserve price to ensure profitability.
• Smaller Buyer Pool: Buyers in auctions are often limited to cash buyers and investors, which can reduce competition.  Mitigation: Choose an auction house with a strong network of leasehold property buyers.

Steps to Sell a Short Lease Flat Through Auction

1. Prepare the Legal Pack: Include the lease agreement, service charge details, and ground rent information.
2. Work with a Specialist Auction House: Select an auctioneer experienced in leasehold properties to attract the right buyers. Ensure the property is marketed effectively, emphasising its location, potential rental yields, and investment opportunities.
3. Set a Realistic Reserve Price: Collaborate with your auctioneer to determine a minimum sale price that reflects the lease length and market conditions.
4. Highlight Opportunities for Buyers: Use the auction listing to explain how the Leasehold Reform Act could benefit buyers who plan to extend the lease after purchase.
5. Target the Right Buyers: Market the property to cash buyers, developers, and buy-to-let investors who are well-versed in leasehold reforms and prepared for the lease extension process.

Leasehold Reform Act Considerations in 2025

Has the Leasehold Reform Act Come into Effect yet?

The Leasehold and Freehold Reform Act 2024, which received Royal Assent in May 2024, introduces significant changes aimed at making it easier and more affordable for leaseholders to extend their leases or purchase their freeholds.

Key Provisions

• Extended Lease Terms: The standard lease extension term will increase to 990 years for both houses and flats, up from 50 years for houses and 90 years for flats, with ground rent reduced to zero.
• Elimination of Marriage Value: The calculation of costs for lease extensions will no longer include the ‘marriage value’, which often increased expenses for leaseholders, especially those with leases under 80 years.
• Removal of Two-Year Ownership Requirement: Leaseholders will no longer need to have owned their property for two years before being eligible to extend their lease or buy the freehold.
• Increased Non-Residential Limit for Collective Enfranchisement: The permissible non-residential space in a building for collective enfranchisement claims will rise from 25% to 50%, enabling more leaseholders to jointly purchase the freehold of their building.

Implementation Timeline

As of January 2025, these reforms have not yet come into force. The government has indicated that implementation could occur between 2024 and 2028, depending on legislative priorities and the development of necessary secondary legislation.

Potential Implications

While these reforms aim to reduce costs for many leaseholders, some may experience increased expenses. For instance, changes in the deferment rate applied to valuation calculations could result in higher costs for those with leases exceeding 80 years.

Conclusion

Next steps…

Contact us to find out if your property is suitable for auction Request a free pre-auction appraisal or feel free to call us on 0800 862 0206 – we’ll be happy to help.